Treasury Wine hits back at analyst call on gloom in China market

Shares in Treasury Wine Estates jumped almost 5 per cent yesterday as it reaffirmed its positive outlook for Asia.

Treasury Wine Estates reaffirmed its positive outlook for Asia, especially on pricing and profitability.

Shares in Treasury Wine Estates jumped almost 5 per cent yesterday as the winemaker moved quickly to dispel analysts’ views that its forecast boom in China was illusory after the growth in wine imports into the Asian powerhouse began to slow.

Heralding its success to date in China, especially as it rode the back of the free trade agreement and used a revamped distribution network to dive further into tier 1 and tier 2 cities, Treasury Wines reaffirmed its positive outlook for the region, especially on the company’s pricing and profitability.

Treasury Wine, whose brands include Penfolds, Lindemans, Saltram and Wolf Blass, confirmed its earnings for the second half of the 2017 financial year and said growth prospects in the China market remained intact. Treasury Wine is due to report its full-year results on August 17.

Treasury Wine Estates said volume growth in Asia had been driven by investment and brand building, supported by favourable imported wine fundamentals in China.

“Significant opportunity for continued, sustainable growth exists in China as TWE expands into new, strategically important cities and provinces,” the company said in a statement.

“TWE’s volume growth and profitability in the region has been driven by significant route-to-market investment.

“The free trade agreement entered into by Australia and China has not provided TWE with a one-off volume benefit. (It) merely enhances the profitability of TWE’s business model in China.’’

The statement seems to have been a reaction to a bearish Goldman Sachs report issued the previous day that said Treasury Wine was too optimistic about China as new Chinese customer figures pointed to slowing wine imports. Goldman Sachs slapped a sell on the stock. That sent Treasury Wine shares down 5 per cent on Monday.

Treasury Wine fired back yesterday, saying it was driving further growth in the biggest cities, in part by penetrating retail, wholesale, e-commerce, on-premises, convenience and global travel retail channels.

Treasury said it expected Asia to deliver an earnings margin of 30-35 per cent sustainably, helped by a disciplined approach to driving luxury and masstige (mass prestige) volume growth in north Asia, margin ­accretion in established brand portfolios and execution across all channels.

Shares in Treasury Wine closed at $12.76, up 58c.